Crop insurance via cell phone takes root in Kenya

Kilimo Salama, which made its debut as a pilot project in 2009 in Nanyuki with 220 farmers, now insures 22,000 members and covers wheat, sorghum, cotton, beans and coffee in addition to maize, writes Tina Rosenberg

Tending a maize crop. “If small farmers in Africa have heard of insurance — and many haven’t — it’s usually because they know someone who was cheated when a company went bankrupt, an agent ran off with the money,
or a middleman stole a payout before it reached the farmer.” file

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In the United States, insurance against extreme weather is seen as so important that Washington subsidises it highly and requires it for farmers who want other government benefits. If American farmers need weather insurance, African peasant farmers need it even more. But the vast majority of African peasant farmers have no opportunity to insure their crops.

Virtually all small farmers in Africa depend on rain for irrigation. Most have no safety net — a farmer planting an acre of corn twice a year can find her family nearly destitute if the crop fails because of drought early in the planting season, or too much rain later on.

She will have invested everything she has in seeds and fertiliser. There will be nothing left for the next planting season.

Small farmers around the world need many different things to help them survive climate change: seeds resistant to extreme weather and pests, cheap irrigation systems, and better agricultural infrastructure, such as more feeder roads. But one thing that can help small farmers now is insurance. The insecurity of farming sabotages yields even when the weather is good.

Because of the risk, many farmers are unwilling to bet all their money on a crop, so they sow only a portion of their land. Or they use poor quality seeds because they do not want to increase their risks by spending more.

Risk makes it very difficult for farmers to get credit to buy needed seeds, fertilizer, herbicides or insecticides, so their yields are stunted. These are people who can ill afford to get less than the maximum from their plots.

Weather insurance for small farmers has always faced numerous barriers. But throughout east Africa today there are projects finding creative and innovative ways to overcome them. One of them is a project in Kenya’s southwest that so far insures 22,000 farmers.

There are so few farmers with insurance in Africa that this project is the continent’s largest. It is called Kilimo Salama, which means “safe farming” in Swahili. What makes it work is technology.

Insurance companies have never been interested in microinsurance because the transaction costs are too high. A farmer who wants to insure two bags of seeds — a $10 investment — may be paying an insurance premium of a dollar. If there’s drought, someone will have to visit the farm to verify the farmer’s loss.

The company has to do the paperwork to be able to give the farmer her payout of $10. The insurer’s expense is the same for a $10 policy as it is for a $10,000 policy — too much for only one dollar in earnings. Writing tiny policies is only feasible if the process of signing people up, verifying claims and making payouts is nearly free.

But there are also obstacles from the farmers’ side. Even that dollar’s worth of insurance may be too expensive for many farmers.

Insurance also has a bad name. If small farmers in Africa have heard of insurance — and many haven’t — it’s usually because they know someone who was cheated when a company went bankrupt, an agent ran off with the money, or a middleman stole a payout before it reached the farmer.

Kilimo Salama made its debut as a pilot project in 2009, insuring 200 corn farmers in Nanyuki region. Now it is spreading, and covering wheat, sorghum, cotton, beans and coffee in addition to corn. It is a project of the Syngenta Foundation for Sustainable Agriculture, which does research on improving harvests on small farms. The non-profit foundation is financed by the Swiss agri-giant Syngenta. Kilimo Salama also gets money from the International Finance Corporation, a sister organisation of the World Bank.

Syngenta Foundation weather stations like the one in Matanya, Kenya, use solar power and computerised gauges to send out data on rainfall levels.

Kilimo Salama relies on two kinds of technology to reduce transaction costs and build trust with clients. The first is solar-powered weather stations. For decades, Kenya has been dotted with weather stations employing manual rain gauges. Kilimo Salama has modernised 32 of them with solar power and computerised gauges that send out data on rainfall levels, sun and temperature every 15 minutes.

Each farmer who buys insurance is linked to the nearest weather station — no one is more than 20 kilometres from a station. If the weather station shows that the rainfall was insufficient early in the growing season, or too much late in the corn season, all the farmers in that area get an automatic payout — farmers do not have to file a claim.

Small payment

If the rainfall was only slightly off, farmers get a small payment. If the weather was extreme enough to destroy their whole harvest, they get the full amount. No farm visits are necessary. (With corn and the other crops that Kilimo Salama insures, historical data show that payouts using weather as an index are about the same as payouts for actual crop damage from weather.) Just as important is what Kilimo Salama uses to sign up farmers and pay out claims: cell phones. Instead of relying on insurance agents, Kilimo Salama’s insurer — insurance company UAP — sells policies in the same stores where farmers buy their seeds, fertilisers and chemicals.

The shop owner is given a camera phone to record the purchase, which instantly sends a confirmation text message to the buyer. At the end of the growing season, payouts go electronically to the farmer’s cell phone account. It is remarkable that even for small farmers, text messaging and online banking are old friends that provide a comfort level with a new programme. The programme uses the M-Pesa money transfer system. M-Pesa’s popularity was why Rose Goslinga, Kilimo Salama’s founder, chose Kenya. The weather stations and cell phones have lowered the cost of writing policies to the point where Goslinga says the biggest cost is sending the text message welcoming the new client.

Kilimo Salama has recruited partners who will pay half the cost of the premium if farmers buy their products. One of them is Syngenta — a mixture of the philanthropic with the commercial that makes some others who work on this issue uneasy.

Changing climate

But it’s obvious why the programme uses partners, as paying the full 10 per cent of their costs for insurance is still too much for many farmers. Insurance may drift even further out of reach as it becomes more necessary. The years of weather data that re-insurers need to price risk will be less relevant to a changing climate, so they are likely to demand higher premiums. And of course, crops will fail more often.

“It is becoming more expensive to insure as climate change progresses,” said Cristina Rumbaitis del Rio, an associate director of the Rockefeller Foundation who works on climate change resilience. “But the more people you have insured and the more you can spread the risk the better.”

The main obstacle to insuring farmers, said Goslinga, is that if they have heard of insurance, they don’t trust it. “You’re selling a promise,” she said. So Kilimo Salama built in various mechanisms to win farmers’ trust.

Having agro-dealers sell policies means farmers have a familiar person to contact if a problem arises. Kilimo Salama starts its policies very small — farmers can insure a single bag of seeds or their whole harvest — to allow farmers to try out the idea before investing a lot of money in it. Using M-Pesa means farmers know their payment will not get stolen. “If you are developing a new product, you want as little as possible to be new,” Goslinga said. “You want the other parts to be known and trusted.”

Selling farmers on the idea of insurance is labour-intensive. Forty per cent of the project’s budget goes to pay for trainers who work with farmers, a telephone help line and radio programmes about insurance. Kilimo Salama expects that this expense will drop as the product becomes more familiar. It aims to be commercially viable in three years.

Perhaps the most effective form of persuasion is allowing farmers to see that the insurance works. Joseph Ndun’gu farms a bit more than an acre of corn in Laikipia county. He is adventurous; when Kilimo Salama approached him to be among the first farmers to get insurance he readily agreed.

“I had not heard of insurance, but I agreed to it because this area is a bit dry,” he said. It was a good bet. The first year, Kilimo Salama gave the insurance away to farmers who bought four bags of seeds — a $20 expense. When the rains failed, Ndun’gu got $16 back. “We got the payout, and it was correct,” he said. That convinced his neighbours, who bought insurance for their next planting. This is Ndun’gu’s fourth planting insuring his seeds.

Lucy Muriuki sells farming products in Nanyuki and was one of the first two agro-dealers to join Kilimo Salama. “When I first talked to them about insurance, the farmers thought it was a joke,” she said. “But now 80 per cent of the farmers who walk into my shop ask for it.”

As cell phone and mobile money penetration deepens in Africa — and this is happening stunningly fast — the possible reach of insurance products like Kilimo Salama will widen. Goslinga is talking to people in Tanzania, Uganda, and Rwanda about setting up weather insurance as the technology progresses.

Rosenberg won a Pulitzer Prize for her book The Haunted Land: Facing Europe’s Ghosts After Communism